Howard Archer
Howard Archer
consumer energy feeding high housing looks months oil prices remain round second sidelines spending strength
The MPC could remain on the sidelines for some months to come as it monitors the strength of consumer spending and the housing market, and also looks to see if high oil and energy prices are feeding through to have second round inflationary effects.
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It appears that strong competitive pressures on the high street and through the supply chain are continuing to contain any second round inflationary effects of high oil and energy prices.
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Overall, the mortgage approvals and lending data indicate that the more robust housing market activity evident in the second half of 2005 has continued into 2006.
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The sector may see modest expansion in the first quarter of 2006, having been a major drag on overall growth in the fourth quarter.
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The strength of the public finances in January effectively guarantees that Brown will be able to avoid making any major tax hikes or significant spending cutbacks in March's budget.
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The slowdown in euro zone growth will not deter the ECB from raising interest rates in March and a further hike remains very likely in June.
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Euro region labor markets are finally beginning to see genuine, if somewhat limited, improvement, boosted by the pickup in growth since mid-2005. Rising employment is key to boosting consumer spending across the euro region.
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Flat export orders in February are particularly disappointing.
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Pretty healthy retail sales growth in November reinforces belief that consumer spending is picking up to some extent, and reduces the case for a near-term interest rate cut.
below data features headline positive
Below the headline data there are some positive features that should not be overlooked.
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The testimonies to the Treasury Select Committee reinforce the impression that interest rates are set to remain on hold for several months to come.
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This significantly reduces the prospects of any interest cut until at least August. Indeed, it increases the odds that the eventual next move in interest rates could be up.
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While the CBI survey indicated a marked softening in consumer spending following the relatively strong December performance, it nevertheless indicated a significantly stronger performance than that seen overall in recent months.
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It currently seems a pretty safe bet that interest rates will not change for several more months to come, if at all this year.